Bear run as NSE condemns insurers’ investment income to four-year low

Insurance companies posted investment income of Sh6.5 billion for the year ending December 31, 2015, the lowest since 2011. PHOTO: COURTESY

Insurance companies posted investment income of Sh6.5 billion for the year ending December 31, 2015, the lowest since 2011.

Latest data compiled by the Insurance Regulatory Authority (IRA) show the income was a 41.2 per cent slump compared to Sh11.1 billion the industry received in 2014.

IRA Commissioner of Insurance who is also the CEO, Sammy Makove, said the shrink denied insurers much needed income supplements.

"This may have been as a result of the financial slump in the Kenyan financial market, especially the stock markets where insurers hold a substantial portion of their investments," said Makove.

However, asset base for the industry continued to rise. In the 12 months to December last year, assets rose by 11.2 per cent to hit Sh478.75 billion. Some 81.5 per cent of these (Sh390.2 billion) was held in income generating assets.

A large proportion - 42.9 per cent - of the total industry investments was held in government securities. This was a significant shift from the previous year's 38 per cent.

The report attributes this shift to the high yields from government securities. The dismal performance of stock market prompted insurers to do asset reallocation to reap from attractive rates from treasury bills and bonds.

Investments in property came second at 17.6 per cent followed by investments in ordinary shares.

Even for long-term insurance business, government securities accounted for the lion's share of the investments at 49.8 per cent.

Last year, a record 18 listed companies at NSE issued profit warning in a period that saw the bourse post the worst performance in four years. A massive Sh250 billion of paper wealth was eroded, as all listed insurers with exception of Jubilee and CIC issued profit warnings.

An analysis of the market by Weekend Business in July showed that bear run at NSE has persisted. By mid-year, only 12 of 64 counters were in green while a massive 52 stocks, being 82 per cent of the market, remained in red.

According to the 2015 Global Insurance Market Report released by the International Association of Insurance Supervisors (IAIS), insurance industry was affected by global economic factors such as weak economic growth, volatile financial markets and near-zero interest rates.

At the same time, IAIS adds, the entire insurance sector experienced declining investment yields.